Spread Betting Explained in 3 Points

29 September, 2017

Spread Betting is a financial product that allows you to speculate on the movement of 1000s of different financial markets all from one account. No need for financial intermediaries, stock brokers, or financial advisers. You run your portfolio all from our simple to use trading platform.

You can speculate on the movement of a market by trading on margin, this means you only need a small percentage of the total value of your trade in your account, though it is important to remember that, if your trade moves in the wrong direction, you would still liable for the full amount of any loss as if you actually owned the asset.

Spread betting gives you the opportunity to profit from the rise or fall of a financial product without having to own the underlying asset.

Spread betting is a leveraged product, you are only required to deposit a small percentage of the total value of your trade.

Profits from Spread betting, under current UK tax law, is free from Capital Gains*.

So, what is a Spread?

Just like in other forms of trading there are 2 prices for an asset an offer price which is the price you buy at and there is a bid price which is the price you sell at. The difference between these two prices is known as the ‘Spread’

The smaller the spread the cheaper it is for you to trade, this is the only cost of spread betting. The tighter the spread the greater the return on a successful trade. Spreads can be fixed or variable. At Core Spreads we offer some of the tightest fixed spreads in the market. You know what the spread will be at all times with a variable spread you have no control over the price and it may be at its widest when you need to close a trade.

What is trading on Margin?

Because spread bets are leveraged products – where you only have to put down a small percentage of the underlying notional value of a trade – they carry considerable risk. The further a price goes in your favour, the larger the profit and more amplified the return on investment. Conversely, the further the price goes against you, the more you lose.

To make a trade, you need to deposit what is called ‘margin’. This is effectively money to cover you in case you lose money on the trade. The margin you need on your account is a percentage of the notional value of the trade, sometimes this can be less than 1%. Margin can also be expressed in points.

Given this, and that even the best traders will lose at least some of the time, it’s vital to pay attention to risk management.

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